By Jan Lopatka
PRAGUE, April 8 (Reuters) - Czech consumer prices dipped
unexpectedly in March, pushing the annual inflation rate down
from nine-year highs at a swifter-than-expected pace and lending
some support to the case for stable interest rates.
Consumer prices dropped 0.1 percent on the month on falls in
the prices of holidays, food, alcohol and tobacco, the Czech
Statistical Bureau (CSU) said on Tuesday. The data defied market
expectations of a 0.1 percent increase.
The decline put year-on-year inflation at 7.1 percent, down
from 7.5 percent the previous month [].
The figures supported an argument against further monetary
policy tightening, following 200 basis points worth of interest
rate hikes spread between late 2005 and February this year.
"Although inflation is high above the CNB (central bank)
inflation forecast, it should return toward the forecast at the
turn of 2008 and 2009," said Helena Horska, an analyst at
Raiffeisenbank.
"Therefore, we do not expect the central bank to change
interest rates throughout the year."
Some analysts, however, pointed out that part of the drop
was attributable to food prices, which the bank excludes from
its core inflation measures.
"The central bank must further follow the development of
adjusted inflation, which shows demand-side pressures from the
economy," said Komercni Banka analyst Jiri Skop. "We believe the
central bank will raise interest rates at its May meeting."
The bank last raised its key two-week repo rate by 25 basis
points to 3.75 percent in February, but has since been torn
about its next moves.
Inflation has soared high above the bank's 3 percent target
and the labour market has tightened amid strong economic growth,
sparking further inflationary pressures.
CONFLICTING PRESSURES
Unemployment dipped to 5.6 percent in March from 5.9 percent
in February, data from the Labour Ministry showed on Tuesday
[].
But the strong crown currency, which has gained 10.5 percent
to the euro over the past year, has made imports cheaper, a
powerful anti-inflationary factor in the small, open central
European economy.
The crown dipped after the data to 25.04 to the euro at 0810
GMT from 24.975 earlier.
The sagging outlook of the European economy is also an
anti-inflationary risk, although it has so far not hurt Czech
exports.
Central bank Vice-Governor Miroslav Singer said after the
bank's policy meeting on March 26 that risks on both the pro and
anti-inflationary sides were unusually high, making policy
decisions difficult.
He said the bank would rely on upcoming data for direction.
The bank has said inflation would drop back toward the 3
percent target in early 2009 when one-off price hikes related to
government tax reform, rent, health and energy cost rises in
January drop out from the annual figures.
(Reporting by Jan Lopatka; Editing by Michael Winfrey)
